The CARD Act of 2009 has provisions that enable borrowers to pay down their existing credit card debt sooner, save money in future interest, and improve their credit score, according to the Center for Responsible Lending (CRL). These key protections took effect on February 22, 2010, and have forced credit card issuers to reform the complex way card payments are credited to individual accounts.
CRL advises Americans to:
- Pay above the minimum amount due. Paying more than the minimum can save you as much as $2 for every extra $1 you pay. For example, before the CARD Act, paying $100 extra could save you $164 in interest charges, but now that same payment amount can save you $224.
- Watch out for penalty rates. Issuers can still raise your interest rates on new balances for the slightest reason. It is particularly important to pay above the minimum if you get hit with a penalty rate. Doubling your payment could cut your interest charges over the following four years by more than half.
- Don’t opt in to over-the-limit coverage. Over-the-limit coverage is a bad deal because it means that if you go above your limit, the credit card company will extend you additional credit at an exorbitant cost automatically – as much as 4,215% APR (annual percentage rate) – instead of rejecting your card. A better option would be to call your issuer to see if you can have your limit raised, or apply for additional credit elsewhere.
- Avoid arbitration clauses in credit card contracts. Protect your rights. There are now more card options without arbitration clauses and you should ask your credit card company for such a card. Forced arbitration requires the borrower to resolve any dispute with an arbitrator and not in court. Research shows decisions in arbitration favor card issuers, rarely the wronged borrower.